Performance review
1Q20's performance exceeded our expectations.
Sirte announced 1Q20 results: revenue of 858 million yuan, an increase of 65.6% over the same period last year; net profit of 60.81 million yuan, an increase of 41.2% over the same period last year, corresponding to a profit of 0.08 yuan per share, deducting 56.63 million yuan of non-net profit, an increase of 48.7% over the same period last year. The performance exceeded our expectations, mainly due to a substantial increase in chemical fertilizer product sales of 1Q20. The net cash flow of 1Q20's operating activities was 554 million yuan, an increase of 627 million yuan over the same period last year.
Affected by the decline in the price of products such as monoammonium phosphate, 1Q20 achieved a gross profit margin of 18.1%, a decrease of 5.5% compared with the previous month, a decrease of 9.9% in the expense rate during the period of the company, and a decrease of 7.1% in net profit rate of 1Q20 in the same period of last year. Compared with the same period last year, the net profit rate of 1Q20 decreased by 1.2ppt, and increased by 1.3ppt.
Trend of development
1Q company chemical fertilizer sales increased significantly, fertilizer prices and profits are low. Affected by COVID-19 's epidemic situation, the operating rate of monoammonium phosphate and compound fertilizer enterprises in 1Q20 Hubei is relatively low, resulting in a reduction in the supply of monoammonium phosphate and compound fertilizer industry; the company's production base is located in Anhui Province, which is less affected by the epidemic, and the first quarter is the peak season for spring ploughing and fertilizer preparation, with a substantial increase in sales of the company's main chemical fertilizer products. Although the company's monoammonium phosphate and compound fertilizer prices rebounded during the 1Q20 period, the quarterly average price and profit of the product are still low. According to Zhuochuang Information and Longzhong Information data, the average ex-factory price of monoammonium phosphate of 1Q20 Company dropped 17% to 1914 yuan / ton compared with the same period last year, and the average factory price of compound fertilizer decreased by 6% to 19% compared with the same period last year. 1Q20's gross profit margin decreased to 18.1% year-on-year due to the decline in fertilizer prices.
The integrated industrial chain has been improved, and fund-raising projects have contributed to the growth. In 2019, the company's pyrite 380000 tons / year technical renovation project has entered the stage of formal production. We expect that after the project is put into production, the company's pyrite production will be reduced, and the industrial chain will be further improved to enhance profitability. The company raised investment for the construction of 650000 tons of new fertilizers and 400000 tons of soil conditioner projects. at present, the plant construction has been completed, and equipment procurement and installation are being carried out. We expect to gradually put into production by the end of 2020. the construction of fund-raising projects is expected to contribute to the company's performance growth.
Profit forecast and valuation
We maintain the 21-year profit forecast of 2020 Universe, which is RMB 25,000,000. At present, the company shares correspond to the price-to-earnings ratio of 14.8pm and 10.9x, and the price-to-book ratio of 0.9company0.9x. We maintain our target price of 6 yuan, which is 16.3% higher than the current stock price. The target price corresponds to the price-to-earnings ratio of 13x and the price-to-book ratio of 1.1max and 1.0x in 2020 and 21, and maintains an industry rating that outperforms.
Risk
The prices of monoammonium phosphate and compound fertilizer products have dropped, and the progress of fund-raising projects has been lower than expected.
